Module 8

Facility Location Models

Roberta Russell & Bernard W. Taylor, III

Beni Asllani
University of Tennessee at Chattanooga
 Lecture Outline

 Types of Facilities
 Site Selection: Where to Locate
 Location Analysis Techniques
 Types of Facilities

 Heavy-manufacturing facilities
◼ large, require a lot of space, and are
expensive
 Light-industry facilities
◼ smaller, cleaner plants and usually less
costly
 Retail and service facilities
◼ smallest and least costly
Factors in Heavy Manufacturing
Location
▪ Construction costs
▪ Land costs
▪ Raw material and finished goods
shipment modes
▪ Proximity to raw materials
▪ Utilities
▪ Means of waste disposal
▪ Labor availability
Factors in Light Industry
Location

 Land costs
 Transportation costs
 Proximity to markets
◼ depending on delivery requirements
including frequency of delivery
required by customer
 Factors in Retail Location

▪ Proximity to customers
▪ Location is everything
 Site Selection: Where to Locate

 Infrequent but important  Location criteria for

◼ being “in the right place at the manufacturing facility
right time” ◼ nature of labor force
 Must consider other factors, ◼ labor costs
especially financial ◼ proximity to suppliers and
considerations markets
 Location decisions made more ◼ distribution and
often for service operations transportation costs
than manufacturing facilities ◼ energy availability and cost
 Location criteria for service ◼ community infrastructure
◼ access to customers ◼ quality of life in community
◼ government regulations and
taxes
 Global Location Factors

▪ Government stability ▪ Raw material availability

▪ Government regulations ▪ Number and proximity of
suppliers
▪ Political and economic
systems ▪ Transportation and
distribution system
▪ Economic stability and growth ▪ Labor cost and education
▪ Exchange rates ▪ Available technology
▪ Culture ▪ Commercial travel
▪ Climate ▪ Technical expertise
▪ Export/import regulations, ▪ Cross-border trade
duties and tariffs regulations
▪ Group trade agreements
 Regional and Community
Location Factors in U.S.
 Labor (availability,  Modes and quality of
education, cost, and transportation
unions)  Transportation costs
 Proximity of customers  Community government
 Number of customers Local business
 Construction/leasing regulations
costs  Government services
 Land cost (e.g., Chamber of
Commerce)
 Regional and Community
Location Factors in U.S. (cont.)
 Business climate  Infrastructure (e.g.,
 Community services roads, water, sewers)
 Incentive packages  Quality of life
 Government regulations  Taxes
 Environmental  Availability of sites
regulations  Financial services
 Raw material availability  Community inducements
 Commercial travel  Proximity of suppliers
 Climate  Education system
 Location Incentives

▪ Tax credits
▪ Relaxed government regulation
▪ Job training
▪ Infrastructure improvement
▪ Money
 Geographic Information
Systems (GIS)
 Computerized system for storing, managing,
creating, analyzing, integrating, and digitally
displaying geographic, i.e., spatial, data
 Specifically used for site selection
 enables users to integrate large quantities of
information about potential sites and analyze these
data with many different, powerful analytical tools
GIS Diagram
 Location Analysis Techniques

▪ Location factor rating

▪ Center-of-gravity

▪ Load-distance
 Location Factor Rating

▪ Identify important factors

▪ Weight factors (0.00 - 1.00)
▪ Subjectively score each factor (0 - 100)
▪ Sum weighted scores
 Location Factor Rating: Example
SCORES (0 TO 100)
LOCATION FACTOR WEIGHT Site 1 Site 2 Site 3
Labor pool and climate .30 80 65 90
Proximity to suppliers .20 100 91 75
Wage rates .15 60 95 72
Community environment .15 75 80 80
Proximity to customers .10 65 90 95
Shipping modes .05 85 92 65
Air service .05 50 65 90

Weighted Score for “Labor pool and climate” for

Site 1 = (0.30)(80) = 24
 Location Factor Rating: Example
(cont.)
WEIGHTED SCORES
Site 1 Site 2 Site 3
24.00 19.50 27.00
20.00 18.20 15.00 Site 3 has the
highest factor rating
9.00 14.25 10.80
11.25 12.00 12.00
6.50 9.00 9.50
4.25 4.60 3.25
2.50 3.25 4.50
77.50 80.80 82.05
 Center-of-Gravity
Technique
▪ Locate facility at center of movement
in geographic area
▪ Based on weight and distance
traveled; establishes grid-map of
area
▪ Identify coordinates and weights
shipped for each location
 Grid-Map Coordinates
y n n
 xiWi  yiWi
2 (x2, y2), W2 i=1 i=1
y2 x= n y= n
 Wi  Wi
1 (x1, y1), W1 i=1 i=1
y1
where,
x, y = coordinates of new facility
3 (x3, y3), W3 at center of gravity
y3 xi, yi = coordinates of existing
facility i
Wi = annual weight shipped from
facility i

x1 x2 x3 x
 Center-of-Gravity Technique:
Example
y A B C D
700 x 200 100 250 500
C y 200 500 600 300
600 (135)
B Wt 75 105 135 60
500 (105)
Miles

400
D
300
A (60)
200 (75)
100

0 100 200 300 400 500 600 700 x

Miles
 Center-of-Gravity Technique:
Example (cont.)
n
 xiWi
i=1 (200)(75) + (100)(105) + (250)(135) + (500)(60)
x= = = 238
n 75 + 105 + 135 + 60
 Wi
i=1

n
 yiWi
i=1 (200)(75) + (500)(105) + (600)(135) + (300)(60)
y= = = 444
n 75 + 105 + 135 + 60
 Wi
i=1
 Center-of-Gravity Technique:
Example (cont.)
y A B C D
700 x 200 100 250 500
C y 200 500 600 300
600 (135)
B Wt 75 105 135 60
500 (105)
Center of gravity (238, 444)
Miles

400
D
300
A (60)
200 (75)
100

0 100 200 300 400 500 600 700 x

Miles
 Load-Distance Technique

 Compute (Load x Distance) for each site

 Choose site with lowest (Load x Distance)
 Distance can be actual or straight-line
 Load-Distance Calculations
n
LD =  ld i i

i=1
where,
LD = load-distance value
li = load expressed as a weight, number of trips or units
being shipped from proposed site and location i
di = distance between proposed site and location i
di = (xi - x)2 + (yi - y)2
where,
(x,y) = coordinates of proposed site
(xi , yi) = coordinates of existing facility
 Load-Distance: Example
Potential Sites Suppliers
Site X Y A B C D
1 360 180 X 200 100 250 500
2 420 450 Y 200 500 600 300
3 250 400 Wt 75 105 135 60

Compute distance from each site to each supplier

Site 1 dA = (xA - x1)2 + (yA - y1)2 = (200-360)2 + (200-180)2 = 161.2

dB = (xB - x1)2 + (yB - y1)2 = (100-360)2 + (500-180)2 = 412.3

dC = 434.2 dD = 184.4
 Load-Distance: Example (cont.)
Site 2 dA = 333 dB = 323.9 dC = 226.7 dD = 170
Site 3 dA = 206.2 dB = 180.3 dC = 200 dD = 269.3

Compute load-distance
n
LD =  ld i i
i=1
Site 1 = (75)(161.2) + (105)(412.3) + (135)(434.2) + (60)(434.4) = 125,063
Site 2 = (75)(333) + (105)(323.9) + (135)(226.7) + (60)(170) = 99,789
Site 3 = (75)(206.2) + (105)(180.3) + (135)(200) + (60)(269.3) = 77,555*

* Choose site 3